Autocorrelated price-sensitive demand and the dynamics of supply chains


We investigate the dynamics of a supply chain with an autocorrelated, price-sensitive, stochastic, and linear demand model. We assume the exogenous market price follows a first-order autoregressive process. The demand process is a weighted function of the current and previous market prices, the market potential, and the positive demand sensitivity coefficient. We assume that a manufacturer faces five different types of customers in the market: responsive, selective, naive, speculative, and slow customers. A weighting factor determines how customers react to period-to-period price changes. In addition to explaining the basic dynamics with this demand model, we propose new ideas for dual sourcing policies, assuming two suppliers, one offshore and one near shore

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